We came across a bullish thesis on Spotify Technology S.A. (SPOT) on Substack by Francesco Ferrari. In this article, we will summarize the bulls’ thesis on SPOT. Spotify Technology S.A. (SPOT)’s share was trading at $642.73 as of Feb 19th. SPOT’s trailing and forward P/E were 111.47 and 62.50 respectively according to Yahoo Finance.
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Spotify has established itself as a dominant force in the global audio streaming industry, with a clear strategy centered around margin expansion, product diversification, and strong user retention. Under the leadership of its Founder & CEO, the company has steadily improved its gross margins, targeting a long-term range of 35-40%. This expansion has been driven by a shift in revenue mix, particularly through the increasing contribution of audiobooks and podcasts, which offer higher margins than traditional music streaming. As these segments scale, Spotify continues to strengthen its competitive position by differentiating itself beyond music, enhancing user engagement, and increasing monetization opportunities.
Operational efficiency has also played a crucial role in Spotify’s financial transformation. The company has systematically reduced the impact of SG&A expenses—including marketing and stock-based compensation—on total revenue, unlocking significant operating leverage. This disciplined cost management, combined with continued investments in innovation, has allowed the company to improve both free cash flow and operating margins. Despite these efficiency gains, Spotify has remained committed to R&D, maintaining a stable investment level relative to revenue, which underscores its focus on long-term product innovation.
User growth remains a cornerstone of Spotify’s success. The platform has demonstrated remarkable resilience in retaining and expanding its subscriber base, benefiting from its sticky ecosystem and personalized content recommendations. This consistent growth trajectory has reinforced Spotify’s position as the market leader in audio streaming, with a significant competitive advantage in data-driven content curation and discovery.
However, with the stock’s recent rally, the market appears to have priced in several years of anticipated growth. While an optimized margin structure and sustained revenue expansion could justify further upside, potential downside risks remain. A temporary slowdown in user growth, shifts in market sentiment, or macroeconomic headwinds could pressure the stock, making the current risk-reward balance less compelling. Still, Spotify’s strong fundamentals, commitment to innovation, and ability to drive profitability suggest that it remains well-positioned for long-term success.
Spotify Technology S.A. (SPOT) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 101 hedge fund portfolios held SPOT at the end of the third quarter which was 98 in the previous quarter. While we acknowledge the risk and potential of SPOT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SPOT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.